Financial Data and Key Metrics Changes - Net sales for Q3 2026 were $20.7 million, down from $23.4 million in the prior year quarter, while net income increased to $1.5 million from $900,000 a year ago [3][7] - Gross margin decreased to 23.5% from 26.1% in the prior year quarter, primarily due to higher tariffs and one-time costs [4][7] - Marketing and administrative expenses rose by $600,000 to $5 million, with expenses as a percentage of net sales increasing to 24% from 18.8% [7][9] - Basic and diluted earnings per share were $0.14, up from $0.09 in the same quarter last year [8] Business Line Data and Key Metrics Changes - The softness in revenue was primarily attributed to the bedding category, where consumers are opting for lower-cost items like blankets instead of higher-priced bedding sets [14][15] - The company is excited about the relaunch of the Groovy Girls product line, which is expected to broaden its reach in the juvenile space [4] Market Data and Key Metrics Changes - The majority of products are produced in China, with almost all (high 90%) sourced from there, which poses risks due to ongoing trade tensions [16][31] - The company is exploring alternative sourcing options in countries like Cambodia, Pakistan, and India, but is cautious due to quality and safety concerns [31] Company Strategy and Development Direction - The company is focused on driving profitability through pricing and cost actions to offset the challenging sales environment [3] - A disciplined approach to capital allocation, including regular dividends and growth-oriented investments, is emphasized as a key pillar for enhancing shareholder value [6][10] - The company remains confident in the long-term fundamentals of the infant, toddler, and juvenile category [10] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the difficult macroeconomic backdrop, including elevated tariffs and uneven consumer spending, but expressed confidence in the company's strategy [10] - The company is committed to managing costs and maintaining a conservative inventory strategy to minimize exposure to excess inventory [5][9] Other Important Information - The company received $2.5 million in insurance proceeds related to claims made under a representation and warranties insurance policy, which positively impacted income before tax [8][18] - The company incurred $600,000 in severance expenses related to operational consolidation efforts during the quarter [5][7] Q&A Session Summary Question: Where was the softness on the revenue line? - The softness was primarily in the bedding category, with consumers opting for lower-cost alternatives [14][15] Question: What percentage of the product comes from China? - Almost all products, in the high 90%, are sourced from China [16] Question: Can you provide details on the $2.5 million insurance claims benefit? - The claims were related to a product category dropped at retail shortly after acquisition, leading to a successful claim under the insurance policy [18][19] Question: How much did pricing contribute to quarterly revenue? - Price increases were implemented across retailers by October, impacting the sales mix during the quarter [26] Question: What is the contingency plan if tariffs increase again? - The company is exploring alternative sourcing options but is cautious due to quality and safety standards [31] Question: Will Groovy Girls be sold internationally? - Yes, the product will be sold internationally through distributors [42] Question: How is the Disney license in Canada performing? - The Disney license started in January, and the company is in the process of introducing its products to larger retailers [44] Question: What is the status of international distributors? - The company has over 30 distributors in more than 50 countries and is focused on expanding this network [47] Question: What is the company's approach to advertising? - The company is increasing its marketing budget and focusing on digital platforms like Facebook and Instagram to reach consumers [49]